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Optimal income taxation with quasi-linear preferences revisited

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  • BOADWAY, Robin
  • CUFF, Katherine
  • MARCHAND, Maurice

Abstract

Properties of the optimal income tax for quasi-linear in leisure preferences are studied. With utilitarian or maxi-min objectives, closed-form solutions are obtained. Bunching occurs over intervals where the second-order incentive condition is binding. Whether this occurs depends solely on the skill distribution. The patterns of consumption and tax rates in the nonbunched range are independent of whether the second-order incentive constraints are binding. Bunching at the bottom can also occur if a non-negative constraint on incomes is binding for some households. The pattern of marginal tax rates depends on the skill distribution and whether it is truncated. Copyright 2000 by Blackwell Publishing Inc.
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Suggested Citation

  • BOADWAY, Robin & CUFF, Katherine & MARCHAND, Maurice, 2000. "Optimal income taxation with quasi-linear preferences revisited," CORE Discussion Papers RP 1466, Universit√© catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:1466
    Note: In : Journal of Public Economic Theory, 2(4), 435-460, 2000
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    File URL: http://dx.doi.org/10.1111/1097-3923.00045
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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